As a dentist, you’ll be spending most of your time learning, developing, and practicing skills in your career. You’ll be leading people to better oral health, putting in 40 hours (or more) every week, and committing to ongoing education. On top of family responsibilities and hobbies, that doesn’t leave you with much time to plan for your retirement.
However, retirement should be one of your top priorities – even if it’s decades away. With just a few strategies, started early enough, you can set yourself up for a much more comfortable retirement.
Why Is Retirement So Important?
Why is retirement such an important consideration?
For starters, you’re not going to work forever. Even if you love being a dentist, eventually, your physical and/or mental condition will prohibit you from continuing. When that day comes, you’ll want to be financially stable enough that you don’t have to worry about meeting all your expenses.
At the same time, the Social Security Administration estimates that it will go bankrupt by 2035 if its funding system isn’t drastically changed. And because you’re likely working for yourself, you won’t have an employer retirement plan or a pension plan to fall back on.
Investments to Consider
Instead of relying on someone else, your best course for retirement is to do your own investing. Set aside a bit of money each month and invest in assets with the potential to help you make long-term gains. Due to the power of compound interest, even a modest initial investment can allow you to accumulate wealth over the course of years (or decades).
These are some of your best options:
- Stocks. Stocks represent shares of ownership in publicly traded companies. In other words, buying a share of a company’s stock makes you a partial owner. Over time, successful companies grow, and their share prices increase, allowing you to sell for a profit. In the meantime, many companies issue quarterly dividends – distributions of profit – that can provide you with a secondary stream of income.
- Real estate. You could also invest in real estate. Good properties in good neighborhoods tend to appreciate over time, helping you see long-term gains. You can also work with a property management company to find a tenant and manage the rental hands-free; with the right property in the right neighborhood, you can generate positive monthly cash flow on top of that long-term appreciation potential.
- Bonds. Bonds are typically seen as a safer investment than stocks, though they also offer a much lower return. You can use them to round out your portfolio and capitalize on some predictable gains.
- Alternative investments. There are dozens of other investments to consider as well. If you’re concerned about economic volatility, you might invest in websites, bitcoin, or precious metals like gold and silver. If you want a stable interest rate, you might lend your money through a peer lending site.
One of the most important aspects of your investing strategy is diversification; dumping all your money into one asset will leave you vulnerable to a major loss. Instead, it’s better to hold a mix of different assets. This will minimize your risk exposure and help you see more stable gains over time.
You can invest in these assets with the help of a designated retirement account, which may offer you specific tax advantages. If you’re self-employed, you may qualify for a SIMPLE IRA or an SEP plan. However, one of your best options will be a retirement account available to everyone: the Roth IRA. In a Roth IRA, you can contribute up to $6,000 per year (currently) and enjoy the benefits of tax-free withdrawals. The only catch is you can only start withdrawing penalty-free once you reach the age of 59 ½.
How Much to Save?
How much should you be putting away? A general rule is to try and replace 70 to 90 percent of your salary in retirement. If you start early enough, that means socking away about 10 to 20 percent of your income. Of course, if you want to retire early, you’ll need to save even more; you can live below your means and cut unnecessary expenses to achieve this.
Risk Tolerance and Portfolio Rebalancing
Over time, you’ll need to periodically rebalance your portfolio to reflect your changing risk tolerance. The younger you are, the more risk you can reasonably accept; your portfolio should be mostly stocks and other higher-risk assets. As you age, you can shift your portfolio to more conservative assets, like bonds or even an annuity.
Retirement doesn’t have to be overly complicated, nor does it have to occupy the majority of your spending and saving. But even a small commitment to preparing for retirement can almost immediately set you up for a brighter future.